I am a partner in the law firm of King & Ballow, with offices in Nashville, Tennessee, and San Diego, California. I have, over the last decade, successfully litigated the most cutting edge issues in the intellectual property and entertainment law field. I represent Eminem’s former producers, F.B.T. Productions, in their battle with Universal Records over whether Universal’s agreements with iTunes and others are licenses (as artists have long contended), or sales agreements (as record labels long contended), and whether artists are entitled to 50% of the net receipts of the labels from permanent downloads. In 2010, the Ninth Circuit ruled in favor of F.B.T. on these issues. I also have successfully represented my clients in all types of copyright litigation, and royalty related matters, with Billboard magazine identifying one such victory as one of 2009’s five most significant decisions in the intellectual property field. Just this year, I was included on Billboard’s Power 100 list, and the cases we have won on behalf of our clients have been featured in The New York Times, and Billboard, among others.

The outpouring of emotion shown after the announcement of Jackson’s death showed the across-the-board appeal of a true cultural phenomenon, one which went hand-in-hand with the media and technological advances of the time. Television had a profound influence in creating a national unity in fandom, allowing the country to simultaneously be outraged or enthralled by Elvis Presely’s swiveling hips on the Milton Berle Show, to curiously get the first sight of the Beatles on the Ed Sullivan Show, to catch Michael Jackson’s performance at the Motown 25 special in 1983 or see the video of “Material Girl” by Madonna on MTV in the 1985. The Internet, however, has allowed consumers greater ability to create their own personal media environments. With 100s of television stations and 1000s of blogs and websites, it’s getting tougher to court the mainstream.

From the 1960s on, the LP album gave the music industry a main product to push, and business was good. In the 1990s the widespread acceptance of the Compact Disc format gave a giant boost to the music industry in album sales. By 2007, over 200 billion CDs had been sold worldwide. But sales of the long playing album have decreased dramatically. In 2000, U.S. consumers bought 785.1 million albums; in 2011, that figure was down to 330.57 million. In 2000, the ten top-selling albums in the U.S. sold a combined 60.4 million copies; in 2011, the top ten sold just 20.2 million copies.

While accounts of the “death of the music industry” have been greatly exaggerated, no one can deny that the music industry is experiencing major changes. For decades the industry relied on a business model of selling massive amounts of copies of a few albums to finance the high-cost of producing records, plugging songs to radio, and overcoming the losses from their other projects. Record companies used the clout of having access to recording studios and access to airplay on the radio to their advantage in contract negotiations with artists, which leveled their risk intake of the enormous costs and influence needed to both produce and push a record.

In a typical record label contract, the record label pays all of the initial costs to make the record, including the studio costs, the hiring of additional musicians, engineers, and producers. These costs, however, are considered advances against the income due to the recording artists, known as a royalty. Any other costs paid out by the record company need to be recouped before the artist makes any money off sales of the album. The multiple categories that are typically included in this arrangement include video production costs, marketing costs, radio airplay costs, packaging costs, costs of returns from music retailers, promotional copies or “free goods”, etc. This sets up a system where everyone, from the producer to the publisher, gets paid before the artist does. The typical royalty rate for an artist is a percentage of the wholesale price of records sold and is around 9-12%. Because the rate is based on the “wholesale price” of the record, any record which is discounted, either because of bargain sales or record clubs, will not count toward the artist’s royalty payments at that rate. This royalty system can also run in between albums, where an artist’s successful album will net no royalty payments for the artist until losses from an earlier unsuccessful album are recouped. In this type of contract the artist gives up the rights to their copyright in a sound recording in exchange for the opportunity to record and have a record released. These agreements will only exist as long as the artist finds it in their best interests to do so.

Over the past decade, technological changes for recording music in a digital, instead of analog, format, along with digital distribution on the Internet, are changing the costs of producing and releasing records, thereby changing the dynamics of the relationship between artists and their labels.

Because of digital services such as iTunes, which is now the biggest selling music retailer in the world, consumers have a greater ability to purchase single songs for a range of $.89-$1.29 rather than have to purchase an album. The shift from consistently selling millions of $15 albums to selling singles for $.99 a song is a factor that makes it harder for a major corporation to see the music business as profitable. Lower overhead becomes key.

Along with the change from an album-formatted to a single-dominated marketplace, there are also new models of selling music that threaten to cut out some of the profits that music labels used to rely on. Audiences accustomed to downloading music for free are now moving to streaming services such as Pandora, Spotify and Youtube for their music fix, services which provide consumers an option to listen to a vast array of content from their computer and cell phones whenever they choose without first purchasing that content. Music pay subscriptions have been around for years, and may provide a new, potentially less profitable, model that labels will have to contend with. It will be seen which of these models, whether consumers purchasing singles, streaming websites, lower pricing models, or music pay subscriptions, will dominate the marketplace, but it is likely that whatever happens, consumers will have more of an upper-hand than in the past on how they will shape the way they purchase content; and these changes will likely lead to lower revenues.

Copyright infringement will have to be factored into any realistic business model. In a 2005 Pew Internet & American Life Project survey, it was estimated that 36 million Americans have illegally downloaded music or video content. The mainstreaming of this infringement also means that an audience exists that is used to getting songs for free. This is an audience that needs to be convinced in the value of buying music. That means that new marketing strategies such as giving away songs, streaming full albums before release dates, contests, etc. will need to be utilized to court a generation of former Napster users. This, along with the other Internet realities, leads to decreased revenue stream as well.

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It might also be important to note that since the tools for releasing music have become more and more accessible some artists have taken to not only releasing their material independently, but doing it entirely on their own (or even starting their own labels to organize everything under a single banner). Perhaps one example of that is Greedhead Entertainment, the label started by Das Racist rapper Himanshu Suri: Greedhead’s first release was Das Racist’s full-length debut, “Relax,” which landed on the top of iTunes hip-hop charts. Not too bad.

The loss in the music business began prior to the advent of mp3′s, as replicating cd’s became accessible to independent musicians in the late to end of the 90′s. As the article states “artists” rarely make a percentage of profit after all the cuts go to production and distribution, promotion, and due to this music is now and has been a hybrid of hired performers that can sing and mimick a song written by a songwriting group. Its eliminated the need for an actual artist, more oft than not the public gets a kareoke style entertainment package designed by a production company tactfully combed over by marketing executives to ensure its sell ability. This system has dulled the arts community, created a lack of trends which used to be set by artists, its generally forced if one does occur by the sales technique of a “label” and dies out quickly. MTV and Fuse both did not bother to promote the masses of artists whom are in touch with themselves, the streets and so forth, instead remained closely linked to the model which was mentioned above, the reason being is many artists sell their own goods out of fear of losing everything, including their dignity-those media entities will not work with independents or pay them directly. Consumers while some will eventually purchase whats forced upon them, they also are savvy and some, not all, understand whats in front of them so they lose interest in paying money, I hear complaints all, ALL the time, which shocks me that people have the amount of depth that they do, that they cannot believe what happened. They see the marketing of teens, the pre-fab nature of it and also that majors seemed to have moved back to 14 year olds or that age demographic whom while will buy whats appealing to them through marketing they also have no clue whats behind it. Some of whats transpired currently is showing some resistance to that model as “Adele” whom was on an independent label is proving success, what the people in the major recording industry have not figured out yet is people are more intune with the world than they think, and do not care to be bothered with the game. Its really quite pathetic and sad. Greed has destroyed a bit more than one sector of culture in the past decade, one would think some of these people would take a hint. Also consumers love love good things to happen to people, and them knowing artists and those whom struggle with their passion are continually screwed over by major record companies, isn’t necessarily driving consumers to the rack to buy that next pre-fab packaged which do sell, but never quite make the grade. Per example the 1980′s is back in full force one can step into any section of New York and feel like this-the clothes, attitude, sounds, you would think record companies would want another major flip in profits as the 80′s produced some the highest earnings in recording history, this was due in part because they supported the arts, its was a prolific time in music, so why aren’t record labels starting from the bottom up with the all of the underground music and dance tracks being re-issued and played in with current music-if it were me I would find all thiose hard to find singles and get them re-circulating. Most likely the because the performers they have using those models wouldn’t look as “authentic” or appealing-as much of whats played now uses samples and parts from that time period. But really if they dug up all the early material and started there they could turn everything over. Instead they sit and wait like vultures for the next batch of fresh meat to dive in on to feed and take what they can get. Really people understand they do not care-and in return neither do consumers-so they download, go to sites where they can take everything for themselves and do their own thing.

You will discover a modest amount of individuals that have a magnificent talent for music. When you find yourself in the playing field of such type of people, it is possible to effectively establish a record label on your own in the business. But bear in mind, the fascination with the music is not enough to build your own label successfully; however a clear understanding of the business ethics is always that vital here. Plenty diligence, pre-planning and also a conquering mindset are the small number of components which will make the music business moderately distinct from its equals.

Great article You will discover a modest amount of individuals that have a magnificent talent for music. When you find yourself in the playing field of such type of people, it is possible to effectively establish a record label on your own in the business. But bear in mind, the fascination with the music is not enough to build your own label successfully; however a clear understanding of the business ethics is always that vital here. Plenty diligence, pre-planning and also a conquering mindset are the small number of components which will make the music business moderately distinct from its equals. recordlabelhq.com